A mindset ‘tone’ . . . that underpins the comeback from last week’s ‘flash crash’, is (or was since we said this was ‘hanging by a thread’ and went to a ‘crash alert’ mode early this morning via ingerletter.com on the day’s first rebound rally above the prior high on Wednesday).. very interesting, as we got our ‘key reversal’ forecast (that’s a higher high for the Dow or S&P; a lower low intraday, and a lower close as well). To all the pundits more interested in marketing than the market; they ignore the technical significance of this, and argue that we’re simply climbing a ‘wall of worry’. Hardly so simple; by that logic markets would always become better buys in the face of disaster without considering that sometimes ‘controlled’ forecast rebounds get set to reverse.
So what is this expected turnaround about?
Not just because of HFT (high-frequency trading) manipulators (kind term considering how detached some of that action is to real fundamentals or even technical structures until the algorithms allow the robots to reverse directions) or because of a solid ‘slap’ at common-sense; plus what was a looking at a worldwide scampering into ‘anything’ pretty much, despite what is a threat of Deflation, not inflation, at least for now. Nor is it phased by even the Fed Chairman’s concern about the shifting of ‘swap’ markets in the banking system (of course the banks, not citizens are the Fed’s main constituent).
It’s interesting because the perception that we’ll ‘never see another bear market’ has it seems returned to some thinking out there; a sentiment that often prevails before a break occurs yet again. That’s why Wed night we said they were ‘pouring gasoline on a fire’, and about to ‘crest’ a hill before going down the other side quite soon. Earlier I have shared comparisons with the 1929 crash or beyond experiences; mostly just to denote ‘why’ we could not replicate all of that, because most of the important banks were kept open, and of course these days we have the FDIC to calm the public, who does increasingly ‘get it’, which took time, but may be a great thing to save freedom in America in the fullness of time (do you get the feeling some in government or even media would like to ‘dumb-down’ the news; as innocuous, even if human-interest type stories tend to be featured, rather than investigative analysis of our economic issues).
It’s because there’s something else we pointed-out back in the 2007-2008 semi-panic situation, as led into the eventual market collapse we forecast as an ‘epic debacle’ in the wake of 4 years of solid bullishness; but rebounds were and apparently still are a method of ‘how’ you recreate the confidence of stability, while the truth is a ‘fragility’.
In 1929, as was the case I noted last week in 1987 (without expanding too much on a psychological aspect of why we warned in August of that year that the break was just a preview of coming attractions), bullish enthusiasm had overcome previous the prior ‘flash crash’ (allusion to last week) dips in the market: Indeed the temporary breaks in the market which preceded the crash of 1929, and also in 1987, were serious trials of stamina, for those who had declined accepting the reality of unsustainable moves, or instead accepted what I called then (or recently) as ‘Alice in Wonderland’ fantasies.
Early in 1928, then in June, later in December, and in February and March of 1929, it seemed that the end had come, but each time the ‘controllers’ of the era brought life back to the sputtering uptrends; sometimes even taking them briefly parabolic, which the analysts and technicians of the era said proved the resiliency of the whole market (a theme I recall in my life during our 1987, our 1999-early 2000; and 2007 warnings as well). But back to 1929; on various occasions then, The New York Times happily reported the return to reality (defined as upside). And then the market took flight once again. However, then we got to August; stumble; rebound; failure; rally; um..October.
The point being that in all these environments, without making this a cliché; the U.S. economy was increasingly deteriorating (relative to the increase in debt service and so on as would be the case today; ie: relativity of a modest recovery to rising deficits), and the underlying fundamentals were more or less ‘unsound’. That’s not merely Wall of Worry climbing; looks like a duck, walks like a duck, and quacks; it’s likely a duck.
Technicians like to say that markets totally ‘anticipate’ fundamentals. Not always will be my point; because there are often powerful forces arrayed to defer this ‘coming to grips’ with reality, until they can’t pull the wool over anyone’s eyes further.
Take the midst of 1929 (or 1987 when we spotted Dollar shifts far before the market broke); the ‘bullish tone’ may not have been firm (rocky moves but basically holding together) while the analysts would be paraded to proclaim that the entire bull market remained in place. In the current environment this would be the crowd convinced that this isn’t just a cyclical extended rebound, but a new orthodox bull market of a secular nature (partial comments on this subject redacted in fairness to our ingerletter.com members) is proclaimed. That’s how they pledge reform, only to then backburner it.
Few participants in 1929, 1987, 2000, or 2007 anticipated a collapse in stock prices, much less a recession or Depression. Few if any accept my view that in the current situation we’ve been muddling through a ‘controlled Depression’ as I term it. In all those historical references, most saw the market’s quick recoveries as a good bit of evidence that the economy and market were both sound. They were not then, to say the least, and they’re not now; though of course we want to see sustainable recovery.
What’s occurring can be summed-up by saying that the economy, domestically and in Europe too, is fundamentally unsound; while the media parades ‘experts’ saying that even Europe is sound. Really? Trade may be helped by a lower Euro; but there’s so much more for them; like a melting of their social umbrella in ‘peripheral Europe’ and a deflationary environment that will also reduce absorption of more-expensive goods from China, or the U.S. for that matter. Nobody talks about the multiplier effect -of our debt servicing- bringing forward the ‘day of reckoning; nobody suggests a survey of Germans to see if they would like to extricate themselves from the Euro; and nobody summarizes the market by saying that the HFT moves by a handful of professionals masks the reality that we are and will increasingly face. The day-to-day euphoria might just be less of a factor than considering what last week’s ‘flash crash’ was really telegraphing; a mite early. The importance of all this should be first-rate in discussions; and is a warning. (This is also expanded upon to our members tonight.)
Bottom line: important tops are characterized by wild swings amidst great turbulence. In reality this market has been hanging by a thread; and our admonition of a resumed ‘crash alert’ to ingerletter.com members Thurs morning (ie: idea of outside-down-day semi-collapse characteristics to the session; with emphasizing taking-aboard near the high this morning new bearish positions), was right on-the-money. On Friday, they’ll try hard to not pull the trigger on a further plunge, but may not be able to abort it, in front of Monday which will face substantial nervousness over proposed trading rules.
I’ll delve into this more via the video a bit; plus have a further new update on Pure Bioscience (speculative; not for everyone; and breaking out to the upside based on what we discussed last night); but in any event encourage general market caution. In the ‘Flash Crash’ last week we suggested taking gains; and projected the Eurozone version of a Plunge Protection Team bailout for early this week; then down anew. In light of that we advocated bearish posturing (including long volatility) early Thursday.
The world may be flush . . . with liquidity; but that doesn’t mean it will press stocks right back to totally unrealistic levels; especially when you assess the impact on S&P earnings that ‘Deflationary’ conditions (even if mild) can suggest, combined with the diminished results for U.S. multinationals with respect to their export business as the Dollar (which we were almost alone in correctly called the prior decline, all this year’s rally, and the currency debasement which does not automatically result in inflation). Only clowns suggest that lower prices caused by deflation (including oil) is favorable. Cash is king; not trash; and we have reiterated that during the past days of rallying.
Debt impairment . . . is the concern; not earnings and recovery optimism as prevails, at least among the delusions of those who see a sustainable economic recovery with no contractions to test the mettle of the turnaround efforts domestically or worldwide.
Gene Inger, Ingerletter.com
This is the third periodic contribution to ‘Mad Money’, and we’re pleased to participate with this new advanced social media format. While our normal comments are provided each evening and four or five times daily via video to our website members, we do want to share with you highlights of this complex evolving investment scene. We try to be neither permabear nor permabull, but permarealist for over a 40 year timeframe, since I had the honor to pioneer financial television in the U.S.A. This dangerous time is not over, and that’s a point I want to convey, so everyone realizes there are 2 sides to this coin.Tags: gene inger, HFT, ingerletter, online investing, stock market predictions, the street, thestreet, what is the stock market doing
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Payback to society or not . . . for the derivatives trades and unscrupulous behavior. This is a scenario we’ve persistently warned wasn’t limited to any single firm; wouldn’t stop at the doorsteps of the banks, brokers or even the rating agencies; and that is very pertinent even now.. the majority of the “toxic debt” to this day remains not unwound.
What Friday’s civil challenges against Goldman, in a market ripe for a breather (as of course we believed) proves, is that the challenges of the “epic debacle,” plus residual impacts, are not over. As to culpability: we contended that the “fix was in,” before the epic debacle collapsed, when there was denial of a problem by both Wall Street and the government, way back when we warned of implications of more than one firm in denial (still masking) what was going on, before Lehman; before Bear Stearns, and of course before the Fed even acknowledged the problem. After our first warning of the “liquidity crisis” and “credit crunch” risk in early February of 2007, we escalated that in the Spring of 2007 to an “epic debacle” call, because we saw firms from a small one in Irvine, all the way up to Citigroup, destroyed or risking restructuring due to net capital deficiencies.
All along, officials denied the whole affair; while the Federal Register proves what we contended, and that there was awareness (the first of the “waivers” we alluded to was noted as from the Secretary of the Federal Reserve Board to Citigroup’s CFO, by the way), as that allowed circumventing the very firewalls intended to protect, in the wake of the Clinton Administration signing-off on repeal of Glass Steagall. Friday’s action is unimpressive taken alone, aside from the government shooting at a high target, although they acknowledge within the disclosed emails, that GS knew the implications of their debt monstrosities. It can’t be all brought down on one 31-year-old VP, unless that too is a part of cover-ups. Perhaps they’re afraid bringing truth forth would create new panic.
Just the other day we noted it might take a whole generation to get leaders that have no tie to this particular era, but that’s not our purpose in these remarks. Rather, it’s to focus on market behavior and a probability that there will be a “wider net” cast before this matter comes to rest. Many analysts were paraded in the media to proclaim just another “buying opportunity,” something we dispute other than interim rebounds that of course will occur, especially when investors press the downside into weakness. At the same time like I noted intraday in calling for a rebound; it would be false, abortive, and the primary corrective downtrend evolves (or primary resumption if that is how it all settles, which we strongly suspect, but it will not all structure itself in one swoop). I also note that where intelligent “structured finance” experts appear, their observations tend to be muted, or reduced to “shallow” comments, lest that too reveal current risks.
Goldman is claiming they lost 90 million dollars on the deal in question. That’s not the issue; the issue is far broader, as you’ll hear from plenty of lawyers close to the story. The typical contention will be that the buyers of the structured products were aware of the risky nature of the investment, and in some cases that’s true, but generally not so or the offloading of risk would have gone far afield what you’ve heard about today. Lloyd’s of London comes to mind as just one entity with investors who clearly weren’t so sophisticated as to comprehend structured derivatives or their inherent risk matrix (if you know the Lloyd’s, or other “pool” structures, you realize limits of due diligence).
Speaking of offloading risk . . a cottage industry has developed regarding of course who or what might be next, whether or not Goldman Sachs “shorted” the S&P in-size ahead of this morning’s news; and whether or not they had advance notice of the Government’s move (no idea about such rumors, and that clearly is not the point).
As to trading, it’s not unusual for financiers to be long a tranche while short another, but there are lots of loopholes that defy interpretation in at least an easy manner. Nor is that pertinent here; we’re not attempting to judge any parties or counterparties, but believed all along that facts affirm the public general perception that there is and was material involvement in issues or misrepresentation by any number of professionals as to the recognized risk in all those instruments that contributed to history’s biggest toxic debt mess, as forecast in advance back in 2007. Further, that such knowledge has significance, whether or not profits or losses occurred, and whether or not even real estate burst. That it did opened a kettle of fish, but the kettle and distortion of evaluations of the merit and risk of the paper, was the issue even pre-catastrophe.
After the decline of 2007-2008, we argued that an interim 2009 rebound would occur (one of history’s greatest, considering misdirection of funds to enable trader recovery in the industry, more so than that of the citizens or small businessmen of our Nation), but that one must not presume said rebound to be anything but cyclical in nature. As we now set-up just the initial phase of corrective action, do expect pundits and others to try to convince everyone that nothing is a big deal; and that onward and upward is the next course. This is what they did in the initial stages of 2007-2008’s declines as well; and now (after post mortem books on the subject enlightened many investors, of course), you’ll have those who say Friday’s news has nothing to do with the market, going forward. They’ll try to make it appear thusly; but if this follows historic patterns, it will only allow for periodic reprieves, as will be chronicled again only after-the-fact. Friday’s events are less likely a one-off; more likely part of a tentative reform trend.
Once harm has been done, even a fool understands it. –Homer, Iliad XVII
Daily action . . . (a segment provided nightly to our regular readers) suspects that the coming week will evidence Friday SEC/Goldman saga as not a one-day wonder; but suggests that there will be washouts and then a rebound effort, especially if we see Sunday night weakness in Asian or European markets. Incidentally, what’s becoming history’s biggest volcanic cloud over Europe has economic implications, too, and beyond the airline industry. In the event the eruptions continue for months rather than days or weeks, the financial pressures on the UK and EU will mount; that in an indirect sense can affect lots of things (inhalation from silica, as confirmed by a radiation oncologist and ingerletter.com member, can cause lung cancer, not at this point noted in mass media). Summer tourism, agriculture and inflation, or availability of particular goods could be impacted, all of which are very much pending. Too soon to draw projections of that magnitude; but clearly intensification of the Icelandic volcano points in the direction of it too not being a short-term only event. Much will depend on how quickly an ice cap contributing to it reaching upper atmosphere levels dissipates. In tonight’s (members only) video I’ll outline the probable stock market pattern for the week just ahead; so for now I will share a few key comments of the week just past.
A “fireball” from outer space disturbed the Midwest calm (last week), massively exploding across the skies from Iowa through Illinois to Wisconsin and Indiana. The Earth shook in some areas as the presumed meteor shower surprised residents. It’s interesting how a fairly normal entry of known particle factors into the atmosphere is able to have unanticipated results. So too may be the trail of gases and meteorites (fragments of assets) as follow the forthcoming market retracement, occurring more like a “bolt out of the blue” to those only now suggesting stocks doubling after they already doubled (ridiculous risk being advocated by some after a solid upward move) as of course they’ll emphasize how “nobody” could have foreseen it (Thursday Daily).
As friction heats the forthcoming decline as belated high-level buyers scramble to find a smooth exit from leveraged positions they assumed without a care in the world with respect to orderly asset management criteria, there will initially be a calm reception to what the most bullish managers would allow is an “overdue” nominal correction. Only, it seems if an “event” occurs, or after a first rebound or two flail and fail, will a majority of participants become reticent, and will the odds for a fiery decline become visible. If it goes thusly, by then a smooth exodus will be tricky, as sellers fleeing keyhole exits are likely to be the dominant feature… interesting picture as they squeeze through.
Look closely at the goods in the current market environment and consider why some pundits are cheering-on advancing prices and advocating new investor buying (quite different that merely averaging-up on winning positions) by suggesting higher prices it seems, irrespective of historical experience. We don’t want to get hysterical about the odds of decline, and evolution may take some time, but this is overdue for a setback.
Fantastic (fairly likely) . . . midweek upward continuation patterns ahead of just a nominal Expiration, have met with a chorus of accolades and optimism from analysts; not to mention a Fed ‘tan (beige) book’ report suggesting broad economic gains over most Fed districts. Amidst the celebratory environment in which many analysts fearful of disaster a year ago are now ‘upgrading’ already-advanced stocks and estimates (a typical pattern as they cave-in to optimism in an extended market) we recalled (on Wed.) one American humorist’s remark, that will be appropriate in the months ahead:
“Feeling good about government is like looking on the bright side of any catastrophe. When you quit looking on the bright side, the catastrophe is still there.” — P. J. O’Rourke, (1947- ), US humorist, journalist, & political commentator
The catastrophe is two-fold: a) if the economy really is improving dramatically (not, but perception is important), then the rate market and oil prices suggest the same as private funds gravitating to replace the Fed in buying Agency securities hints at a shift a bit away from equities and bonds, and look for slightly competitive yields elsewhere at this point; while b) whether the improvement is valid by today’s equity valuations (we suspect not), there’s little doubt that structured derivatives are generally not yet unwound to any great extent; hence there is little wiggle room as the Government for sure tries to “thread a needle” to convince Americans we’re coming out of the woods.
Some clusters of trees are healthier in this forest; others are actually deteriorating. In fact if the debt morass were to be viewed by satellite (or could be displayed on the Google Earth application, and for all we know it probably can be), investors would for sure realize the challenges that face us front-and-center. Besides the state budgets of course, there are other unaddressed issues, including what impact defaults which may occur in certain communities have upon the municipal bond market (here and there, not widely), as well as what happens if the stock market craters concurrently with a realization that municipal (or even state pension defaults) are on the agenda.
All this is conveniently overlooked because of the day-to-day enthusiasm, which isn’t a surprise any more than it’s really a trifecta of good news in this Expiration week. In fact we knew this was a prospect given the psychological desire (no more than that) to have a solid close above S&P 1200, which will not be held before this show’s over.
Overseas we are not finished with challenges. The spreads widened again in Europe just today, and though not widely reported, this suggests the perceived Greek big fat rescue wedding with the IMF & EU might just be headed towards a sort of annulling; at the same time, spreads in Spain, Italy and Portugal also suggest new tensions in the offing. So by no means do we embrace the prevailing view of the crisis as over. (Next week I’ll explore a bit regarding shocking and unreported Money Supply shifts.)
Against this backdrop, and our willingness to look at the other side of the coin, we do express optimism about the future of the United States; as often said looking forward to actual prosperity between [redacted], stating that even before the “epic debacle” in fact fully folded, with an earlier market low. We need political leadership as might be foreseeable, along with trade policies that make progress achievable it should be emphasized, irrespective of the incredible challenges debt pictures provide us. In this regard, another quote comes to mind (although he then had the personal power to influence the future, and often did as history recorded in an earlier panic washout):
“The man who is a pessimist about the future of the United States will inevitably go broke.” –J. P. Morgan
With all the optimism we have for America (reason enough we were totally ticked at a Tuesday comment suggesting America need not be #1, and stated to kids no less, by Obama’s “Science Czar,” who used to write for the Bulletin of Atomic Scientists and who some recall had dubious relationships with questionable participants of the original Manhattan Project, inferred if not accused of leaking information to the Soviets with respect to design attributes of America’s first atomic bomb), we have to at this point view the stock market’s ebullience as a temporary form of what’s called “white noise.”
We are less concerned (because it was a given that some recovery was underway, of course, given the money thrown at this, even if misdirected) about short-term results, than we are about a long-term “vision” for the Nation, given the debt constraints, and that remains troubling irrespective of a “controlled” equity advance that’s on fumes, of course (written earlier last week). To believe there is no price to be paid for the debt future generations are encumbered with is to believe in fairy tales, and to assume the “new normal” is over as we return to “business as usual” (more on this follows).
Absolutely terrific moves have occurred in stocks, and though we can lament being a bit reluctant to embrace a lot of it despite knowing “the fix was in” since forecasting a turn back up in February of 2009 when everyone was panicking (though we’ve never had a short in equities this whole time, only long mostly energy and oil plus sprinkling of speculations, including Ford and financials back then, but certainly not extended at this time); it seems foolhardy to commit to big-cap stocks ahead of what forthcoming woes may lie ahead. Some of those will be fear-based; others will be very realistic.
At the same time we suspected roughly mid-April would become a more dangerous, or contested, time in the market, for a number of technical and fundamental reasons. Earnings generally should be good, but that was anticipated and is discounted. Thus those buying into strength following good reports generally will regret it quite quickly (sometimes within hours). This is a very complex market, and it is professionally handled we’ve argued for months. That’s for sure why it “ground” higher; it’s why the volume is light on the rallies; it’s also why there is no incentive nor expectation for sidelined cash to suddenly emerge onto the scene. And yes, as the pieces of this puzzle again have a chance to come together -once it’s breaking- these factors and others will be cited for reasons for the upcoming declines (written last Tuesday).
If our cynicism is valid, then what is occurring is not unique among economic events of historical significance. It’s part of the reality where economics are bred to ignore at least a lot of real world concerns, and central bankers (or regulators?) are rewarded in a sense, by turning the other cheek (and that means not doing their jobs in time).
At this point they do more transparently discuss what caused the crisis (after millions of dollars spent, they arrive at the triggers which we outlined as projections before the whole “epic debacle” mess commenced), while failing to realize (or admit) that overall leverage is worse today than ahead of (reserved comparison for our members only).
In fairness, every crisis we’ve seen (LTCM, the S&L crisis, what have you) has had a contributing element of “extend and pretend” to the politics of it (where they mask the regulatory or pressured political environment that both stimulated the misdeeds and a failing to then regulate decently until obviously it was past the point of being useful). It was sort of (and remains today) a “see no evil, speak no evil, hear no evil,” as even at this juncture essentially remains the “modus operandi.” If it were now, how come all of these “experts” who now understand what got us here fail to realize we’re still there in terms of leveraged debt and unwound structured derivatives? Primary difference is that American taxpayers (plus kids and grandkids) are on the hook this time around.
The foregoing may not seem to tie into short-term prospects for the market to break it may seem, but actually, it does. Prices are too far ahead of themselves given reality; a running out of cash (the market gas) may be concurrent before state & local failures hit soon; delinquencies and failures (not to mention foreclosures) will rise anew rather than diminish; irrespective of proclamations to the contrary based on wishful thinking.
Finally, despite paring-down the differential between revenues and outlays as was in fact reported by the CBO, a glance at cash suggests Treasury is down to just 9 (for members), which is pretty frightening itself (redacted), regardless of coupons issued and pending settlement. All this focuses my point about shorter durations (redacted).
The bond market hasn’t called equities “bluff” quite yet; but bond managers are hiding in stocks, because of the risk on their traditional side of the ledger. Intriguing indeed if you view that from the perspective of a desperate effort to diversify, but into extended sectors on their own (with respect particularly to the big-caps). Caveat emptor indeed, we say, as the tune’s gradually trying to shift from simply “the band played on” mode.
In my view, we love the animal spirits of American growth but believe lots of that has been throttled by misdirection of funds and special interest support, not citizen help if warranted (meaning not money on a silver platter, but logical small business help that has been mostly lip-service rather than well-directed stimulus). The Fed Chairman is right when he says we’re not out of the woods by a long shot, as I’ve been warning.
We thought the market would try one more time after Easter and it did, but then could easily see flailing and faltering (after these failing) rallies as time evolves quite soon.
Going forward, we again warn about being exhorted to chased rebound rallies as will be cheered-on, not to mention major “commercial” adjustments as are ongoing, along with a careful focus on monetary changes just beneath the radar (so far). And as I’ve said, there were fairly visible new storm clouds gathering, while a primary disturbance is still just offshore, shall we say.
This is our second contribution to the “Mad Money” blog, and we’re delighted to participate in this progressive social media website with its unique approach. We’ll strive to provide a brief comment on a regular basis, as this very complex investment scene evolves.
Gene Inger,
Publisher
Tags: epic debacle, gene inger, goldman sachs, ingerletter, market analysis, market collapse, stock market
A bull trap building? That’s the serious question a year after a bear trap was sprung in-line with our call for the ‘fix to be in’ late in February 2009, looking for rebounds, as even occurred (rather strongly too) during the Great Depression of the 1930’s. Armed with historical and hysterical knowledge, we had a Fed stepping on the gas as never before, on top of panic-driven stimulus. It should be noted that the Fed today is doing something quite different, which is why in last Tuesday’s report to our regular readers I noted prices would briefly work higher, but that the Fed started ‘draining reserves’; a more significant consideration than remarks likely at the upcoming FOMC meeting.
That the stock market ‘grinds’ to higher levels is not a surprise last week or even in the middle of this new week ahead of Triple Witching Expiration. However we do not want to press upside expectations strenuously on a day-to-day basis; for a couple reasons. One; everyone will be watching closely to see hints of a firmer monetary policy from the Fed, and I suspect they’ll get them; veiled in an ‘exit policy’ strategy.
As to equities, which aren’t so cheap as the Street would have most believe based on ‘real earnings’, I know that on the first drop down the cheerleaders will encourage public buying; noting the shallowness of all dips that predated this scenario. And that may in fact work initially; but beware beyond. Recognize this market is increasingly due for corrective action; realize that it remains a seasonally strong time of year, and it seems reasonable to say, don’t insist that they play this out to the absolute max.
Every day we’ve reiterated everything outlined for weeks, where we suggested the S&P indeed WOULD surmount the 1150 area; then have two types of alternatives on a short-term basis. Clearly, due to institutional domination of this market, while it may not be a conspiracy or manipulation, but clearly is able to ‘control’ patterns to ‘grind’ prices higher, in absence of ‘emotionally natured’ traders who aren’t so disciplined to play by the ‘house rules’.
Given that a real host of folks using common sense have discarded the buy-and-hold forever approach with their experience of being killed twice in the last decade (unless they listened to our warnings of debacles, both in early 2000 and again forewarning a sort of ‘epic debacle’ was coming starting in early-mid 2007), it made sense to have a market move higher without many participants willing to come-in on the buy side. For sure in hindsight we wish we were more aggressive than just calling the low precisely last February and early March. Logically this move is over-owned and overextended.
The number of offerings and deals is supposed to instill confidence; actually concern is more of note; given that such details as unemployment worsening (not improving in the way the press suggested) in 30 states; and that firms never raising money (KKR is one that comes to mind) are in the process of doing so (let’s see, who is smarter at that point after such an advance; the buyers or the sellers; even if it takes some time to sort out). We could delve into technicals like standard deviation bands converging, or similarities of the RSI to what was seen after (comparison point reserved); plus a few others, but that’s not necessary. We could even observe the VIX (volatility) as it drives to modern-era lows (often preparatory to reversal action), though here it is unlikely to be the classic pop-and-flop pattern because of the institutional ownership.
Generally the financial press is minimizing the stark realities of our time with a single exception, in that (we’ll give credit where due) CNBC finally recognized a developing ‘budgetary crisis’ in one of our major cities; Miami. We warned you about Miami more than once in the last several weeks, and without prior knowledge of investigations by the SEC about corruption and mismanagement of municipal securities there (we’d also warned that certain risks were being built in the muni market, though calmed it a bit by noting how much money could be made by those who bought in Orange Co., California, after that debacle). To wit; we’d be careful (to be revisited in the future).
Furthermore; the Chinese property bubble and interest rate risk is growing as noted; plus Japan’s Q4 GDP grew at an annual 3.8% pace; lower than preliminary reports in the 4.6% range (not insignificant; and mostly pre-Toyota lowered production levels). It should also be noted that there is a ‘naked credit default swap’ crackdown in Europe; a fairly major story that is given short-shrift by the financial newsroom in Washington; oh, I mean New York (not to suggest that they collude on deciding what’s focused on) …as well as further strikes or civil disruptions in Greece which go beyond budget cuts.
Ironically; though we didn’t expect the market to stop just on a dime at ‘double top city’, we will go back ‘on alert’ for a trading-based reversal, due to various factors. Yes we have been suspicious for some time; but allowed for the rally to surmount the 1150 area, especially in the week before Triple Witching. Well, we got that. Now we’ll be more circumspect and commence looking for a complex broadening top of sorts.
Bearishness has abated . . . almost universally; as the market is ‘walked higher’ by a cleverly structured machine that has perpetuated strength beyond common sense, as fundamentals would dictate (and distorted the relevance of excessive PE’s also). Technically, there has been logic for this rebound, as a pre-Triple Witching Expiration firming thought feasible into the middle of last week, and as traders (were) ‘gunning’ for the well-watched S&P 1150 price level.
But it is an environment in which such little details such as ‘lower railcar loadings’ for a host of commodities, and revised ‘higher’ unemployed in 30 states (only 9 higher so that tempers the ‘spin’ on the original report as suspected would be the case), mostly get ignored or soft-pedaled (also typical) so that investors aren’t drawn to focus at all on the reality, and instead focus on the perception of a magnificent recovery. Frankly, my concern, fundamentally and technically, is based on reality. (More in the full text.)
There are sectors we have liked through this, and commodity-related and oil-related areas, as well as some techs, were at the forefront of that preference. From the start of the old move a year ago we liked even the financials and one auto (Ford); but not now. Meaning, holding some is not the same as entering the buy side into strength. I think this is mostly a waiting game and more of an intense battle (as we’ve outlined).
Dubious fundamentals. . . get masked by a ‘comfortable’ market advance, which for now has been able to absorb all contractions in stride. However over time labor pains eventually yield delivery; and for the market that will be a projected reversal. So even as we called for upside last week, by no means have we backed-off from believing the upside is excessive, and increasingly becoming dangerous; let’s be clear on this.
In the very long-run, Americans will realize that neither the Wall Street elites nor the politicians blaming the ‘excesses of free-market capitalism’ understand this era well. Most of them don’t know what ‘free-market capitalism’ is; and it isn’t making a world safe for corporate takeovers, or just shielding liability behind the corporate veil (we’ll all learn more about that during the course of the Lehman investigation and so on).
What has more closely occurred in the last decade or more, were political decisions of a type compelling companies to shift most of their operations overseas. I saw it as a degrading process that in the long-run would be Nationally destructive, as outlined since my consecutive long ago speeches on this, to the American Footwear Assoc. in Boca & Palm Springs; most were patriots but had no choice just to stay in business in a Nation where Government was orchestrating the destruction of their very survival if they tried to make it in the USA…all that was part of the ‘mutually assured economic destruction’ you never hear about, probably intended to prevent a new world war with unintended consequences that leveled the playing field alright; by decimating middle class America, which is what we warned of… sure niches remain; but it’s too limited.
Unfortunately I was proven right, as money printing and leverage substituted for lots of common sense, in an era where for awhile, cheap goods supplanted smart policy. By so doing our leaders squandered much of what the ‘greatest Generation’ fought for and achieved, in and after World War II; by savoring the fruits without worrying a bit about future harvests. My argument was that for a few decades, the US dynamic had opened the door (finally) for the vast middle class, which was the promise for so many years of our great Nation. The challenge is to politically redress the imbalance.
Wealth and innovation build upon themselves (still do where permitted in limited ways in the U.S.; although the impetus has been lost and must be regained; which requires first of all an understanding of how it was lost, and what’s needed to restore it, which is not FCC control of broadband by the way); and it must be implemented by leaders we have now if we’re to see it by 2020-2030; the years in which we are preliminarily targeting a new prosperity for the United States as outlined here since 2007 (clearly at the time we forecast that three years ago, and five years ago for real estate, we’d made clear that our call for an ‘epic debacle’ would fine an equity low much sooner. Moody’s just said it would be at least 2030 before real estate prices recovery to the prior peaks (so soon; why?); curious, but we were first to say it would be 2020-2030.
Stop the insanity I say. Put American interests at least on a par with foreign interests, and recognize that we cannot make progress by politically caving-in to every country, implied threats or not, that uses a mixture of carrot and stick to exploit us (while they call us the exploiters, which we aren’t). Foreign operations (US owned or otherwise), are rarely held accountable for wrongdoing, much less corporate espionage or worse. The ascension of a corporate or Federal culture over that of a middle-class culture, is part of what’s wrong. It needs to be rethought. It is essential to regain social balance.
Domestically what is really dangerous is the oblique risk of another financial shock. In this case not necessarily a hyperinflation the gold bugs drone on about, but simply all the basic unresolved (in some cases hardly addressed) issues. Whether sovereign or state debt; whether commercial real estate; a double dip against the odds proclaimed by those who are convinced we have a rousing recovery, which we don’t actually yet embrace; or something separate; you increasingly have overbought markets that are pumped-up, not only by controlled rebounds, but having used virtually all available or conceivable borrowing sources; the idea of the U.S. almost being blackmailed by the very sources that ‘bailed us out’, is not something to lightly dismiss. Now sure, like I’d said many times; we are in the catbird seat only because we owe so much and our Dollar (for which we rightly called last years decline, base and ensuing rally) is and is going to remain the ‘reserve currency’. Of course many blame us (without intelligent countering by our leaders), and not a serious word about industrial espionage. It is not that we aren’t impressed by what China has accomplished; but let’s get real here.
I have called this a controlled Depression since forecasting the break to occur three years ago; particularly on the ‘never reported’ waivers that allowed comingling of fund transfers across ‘firewalls’ set-up at the major integrated banks. We said that the Fed and Treasury would facilitate systemic stabilization of banks, but not much more. So I regret to inform you that we were and continue correct. It dovetails in that businesses and even municipalities (we know of two) who concurred with our specific expectation back then, circled their wagons, harbored their cash, and properly rode-out the storm.
Conclusion: stabilization efforts notwithstanding; overall recession and deleveraging conditions will prevail (not may prevail) through this year, and probably into next year as well. Intervening rallies in markets will occur (as occurred), of limited sustainabilty. In event other developments unfold that could truly change prospects; we’ll evaluate.
Three years ago I commenced projecting an ‘accident waiting to happen’; affirmed historically after long-duration periods of free money (Gilded Age mentality). Now a market struggles with extended rebounds as this economy tries to restructure.
Though enormous efforts have avoided systemic disaster on the banking front; there is no equivalent rescue of the overall economy besides perception; nor restoration of engines for sustainable growth. People are adjusting to lower expectations; which will never be a favored approach to American life. Actually we don’t see it as permanently alternating the future; but we still have major adjustments to work-through. That’s the reason we warn about chasing rallies; not to mention major ‘commercial’ adjustments as are ongoing. And as I’ve said; there are fairly visible new storm clouds gathering.
Gene Inger,
Publisher
www.ingerletter.com
Tags: bull trap, gene inger, Jim Cramer, mad money, stock market, the street, thestreet
For most investors, 2009 was a year hopes of economic recovery sent stocks, even those of some of the most troubled companies soaring. In 2010, the continuing rebound will have a strong influence on investors as Wall Street bets on the direction of the economy, interest rates and inflation. Smart stock-picking is the name of the game and investors must focus on strong individual results of companies, such as unexpected earnings and sales growth, as good bets for the rest of the year.
Orion Marine Group, Inc (NYSE: ORN) is a good pick for any portfolio. Orion Marine, which is the third-largest marine construction company in the United States, does dredging, builds bridges, expands ports and other projects. The company can boost its revenue significantly due to bigger funding increases from the Army Corps of Engineers, which is a major client, plus the need for larger ports in the Caribbean and Southeast. The company’s market capitalization is $469.45 million and its projected 2010 earnings growth is 18%, up from 16.9% in 2009.
Apple (NASDAQ: AAPL) has been on fire lately, reaching multiple new highs over the past week, but while it might make sense to buy the stock in anticipation of a peak on the iPad’s April 3 launch date, it’s current price of $224 isn’t exactly cheap. According to The Street, There are a few tech stocks that allow investors to ride on the coattails of Apple, such as Broadcom (NASDAQ: BRCM), AT&T (NYSE: T), SanDisk (NASDAQ: SNDK) and OmniVision (NASDAQ: OVTI).
Discovery Communications Inc., (NASDAQ: DISCA) is another attractive investment play for 2010. Discovery Communications operates cable channels, including Discovery, Discovery Kids, the Learning Channel, Planet Green, Military Channel, FitTV and Animal Planet. The company also plans to jointly own and operate Oprah Winfrey’s new cable channel. The company has thrived in these tough economic times, due in part, to its rapid expansion into international markets such as Brazil and Mexico.
On the global scene, China’s worth serious consideration and some of its companies are attractive investment alternatives for any portfolio. Baidu (NASDAQ: BIDU), a Beijing-based search engine company, has 60% of the market share in China. Though the stock is currently trading at $551, it is attractive because the search engine business in China is nascent and growing in leaps and bounds. For example, last year, 289 million Chinese used the Internet, up 41.9% from 2008, that is only a third of the country’s population.
Another play in China is RINO International, (NASDAQ: RINO), based in Dalian in Liaoning Province, produces environmental protection equipment for the iron and steel industry. It is well poised to capitalize on the infrastructure build-out currently occurring in China. Beijing has set plans to increase sludge processing capacity to 30 million tons a years and plans to have at least 60% of its wastewater treated by the end of 2010. RINO is expecting to capitalize on that trend with a second contract worth $500 million to come by the end of 2010.
Janet Shan
Tags: 2010 investing, AAPL, Apple, BIDU, BRCM, china investing, DISCA, discovery communications, investment predictions, orion marine, ORN, OVTI, RINO, SNDK, T, thestreet, where to invest 2010
Caught a brief section of the show last night -
He’s recommending to buy AAPL. I bought a while back and then got frustrated when I sold it. Of course, today it jumped from $210 to over $218.
Jim: I did not want to have to do this now… not now, I did not want to come to you and tell you that right now you have to pull the trigger on Apple, Inc. (AAPL*)… Apple, but it is time… that is right, if you do not own Apple… I think that the whoopla is about to begin on the new product… the iPad, next week, and you have to own the stock between next week and when the product is commercially available… which may not be until April because of a manufacturing bottleneck… but I am tell you, beginning next week you are going to see this stock start to break out to the upside…
Tags: AAPL, Apple, Lightning Round, mad money, Mad Money Recap
Wal-Mart has promised to clean up their stores and make them easier to navigate. Now anybody who has ever been on the inside of a Wal-Mart knows how difficult it is to find your way around. For one their employees are generally sub-par workers that do not really care about their job or the company they work for. Second of all, they are huge! Wal-Marts range in size from around 98,000 square feet to 261,000 square feet. The average size of a Wal-Mart is somewhere around 107,000 square feet. That is a lot of stuff to look at; it is no wonder that people are complaining about not being able to find anything.
Wal-Mart is using this as an excuse to start removing name brand options from the consumer and replacing them with options that are made directly or indirectly by or for Wal-Mart. Currently about 40% of all products sold in Wal-Mart are one of these private label store brands, or is some sort of product offered by Wal-Mart but still produced through Wal-Mart’s contracts with manufacturers. Wal-Mart started to offer these private brands for sale in 1991 when they launched their Sam’s Choice brand sodas. Two years later Sam’s Choice was the third most popular brand of soda in the United States.
We have already seen the potential of a cheaper “off brand” product produced by Wal-Mart. Once they start to remove name brand goods from the shelves people who shop at Wal-Mart may look for them, but they will purchase the Wal-Mart brand rather than go without. All of the people who currently shop at Wal-Mart will continue to do so even after their favorite brand of paper towels are replaced by something made for or by Wal-Mart. Which brands will suffer the most it is difficult to say, but Wal-Mart is such a powerful force that this “Less Clutter” policy they are putting into place may make or break brands. If a brand manages to stay on their shelves then they have a better chance of being bought since there will be considerably fewer options. Unfortunately for those brands Wal-Mart is extremely picky about the profit of items, meaning that if you are not earning them enough profit they will offer to pay you less for your product. A brands option at this point is to either cut their losses and sell for a lower price or get taken off the shelves. Those brands that are no longer on the shelves will obviously suffer great revenue losses.
Let’s sum this entire situation up in one extremely short paragraph. Wal-Mart stores are gigantic, they average 107,000 square feet in size. They not only offer their own brand of products cheaper than name brands, but they have also started refusing to sell competing name brands. Combine this with Wal-Mart buying Voodoo for some 100 million dollars and we have a corporate monster. I smell a monopoly.
Tags: wal-mart, wal-mart brand, wal-mart brand removal, wal-mart less clutter, wal-mart vudu, walmart brand, walmart brand removal, walmart buys vudu, walmart less clutter, walmart vudu
After the 2009 rollercoaster of layoffs, store closures, and Via instant coffee, Starbucks (SBUX) turned in a stunning first quarter earnings that now seem ripe for contrarian action. At the end of January, 18.81M shares were shorted.
Cynical investors might call this move less contrarian wisdom and more quick-profit bounce. After all, while December’s quarterly gross profits jumped to $241.5M from the previous year’s $64.3M earnings, history still indicates the company has some climbing left to do before matching the almost $5.8B earnings reported in September, 2008. Long-term holders might also be tempted to follow the shorts after glancing at a $22 share price and a $29.96 P/E ratio.
It’s certainly reasonable to ask whether this stock can continue its yearly upward run from a $9.41 share price past its current $22.59 price as of February 11, 2010. Shall we ignore the contrarians or leap onto the haymaking wagon as it trundles by?
Perhaps. But before jumping, consider whether this short bounce might actually be an ill-conceived bet against an inevitable ascent.
Last month, The Next Web reported on the company’s social media efforts to gain and retain an even greater customer base. The numbers are quite imposing.
• Almost 777,000 followers on Twitter
• Over 5.7 million fans on Facebook
• Over 5,000 subscribers to Starbucks YouTube
What’s more impressive is how this 16.8B market cap giant effectively uses these tools to create a individualized fan experience. Twitter answers questions, retweets comments, announces free drink samples, and new iPhone apps while Facebook is used for video uploads, blog posts, event invites, and fan forum discussions. For the geek enthusiasts, Starbucks YouTube has videos on anything from coffee blends to the company’s history to various charity work, including the recent Haiti relief effort.
There’s even a My Starbucks Idea forum where customers can suggest and vote on new ideas while the Ideas in Action Starbucks blog, tells customers what the company’s actually doing with the winning proposals.
Time will tell whether all the social media hype and pizzazz will convert these statistics into actual cash sales. But before writing all of it off as a cynical effort to further push over-priced, burnt coffee on clueless customers, consider one last point.
Not too long ago, hitting the local Starbucks was one of the easiest luxuries to dump for financially-pressed consumers. Now it’s roared back in true contrarian fashion, as one of the few affordable perks in a continued recessionary grind.
Short at your own risk.
Tags: coffee stocks, invest 2010, investing, Jim Cramer, mad money, markets, sbux, starbucks, stocks 2010, the street, TheStreet.com, trading, wall street
Hi-Tech stocks have a real good chance of being an extremely conducive place for investors to invest their money in 2010. Keep in mind that technology companies typically do not carry much debt on their balance sheets, which allows them to purchase other companies when the opportunities arise. In addition, technology companies do a lot of business in foreign economies and couple that with the falling dollar and prices of U.S. products will be very attractive to overseas customers.
There are certainly discussions out there about quality tech opportunities as presented here. In addition, to some of those names I have other areas you might want to consider as you look to garner profits in the technology sector over the course of 2010.
Some of the stocks that are poised to have a very rosy 2010 include Apple Computer (AAPL), Baidu Incorporated (BIDU) and Amazon.com (AMZN). All these stocks have tremendous fundamentals and are in a great position to takeoff to the upside. Another way to participate is to buy the QQQQ exchange traded fund, which closely mirrors the NASDAQ. For more aggressive investors you could purchase the QLD exchange traded fund which move twice as fast the QQQs.
Trading Tips to Help Cash in on Hi-tech Profits
One way to lower costs when thinking about trading in the hi-tech area is to use options. You can use straight calls or spread them to even lower the costs further. There are also the possibilities of implementing covered calls or selling puts on the underlying to lower the overall cost basis. All of these option trading tips can go a long way in improving your total return on investment.
Tags: investing 2010, Jim Cramer, mad money, markets, stock predictions, stocks, tech investing, tech stocks, thestreet, TheStreet.com, wall street
Market fundamentals still indicate a very bullish 2010 forecast for selected emerging markets, which is backed up by a country by country analysis here.
For instance, recently the World Bank raised its growth forecast in China for 2010. The strength of regions like China and Latin America really was crucial to powering through the worst of this worldwide economic downturn. The collective spending power of this ever growing middle class in these emerging markets is immense and should be very profitable in 2010.
Some emerging market stocks that look really good for 2010 include American Tower (AMT), CNOOC (CEO) and even multi-national companies such as McDonalds (MCD) and Coca-Cola (KO) look like very attractive buys for 2010. There is also a very good exchange traded fund like the iShares Emerging Market Trust (EEM), which is a way to participate in the strength of some of these emerging market powerhouses without incurring some of the volatility that sometimes comes with individual issues.
Trading Tips for Taking Advantage of this Opportunity
Of course these stocks and ETFs can be purchased to capture the predicted bullish opportunity. However, one of my key trading tips is to employ options and get a far bigger bang for your buck. You can buy a bullish long-term call for far less than purchasing the underlying.
In addition, you can reduce the outlay even more by using a long-term bull call spread. By selling a further out strike call you can reduce what you had to pay for the lower strike call. Finally, if you do decide to purchase the underlying stock or ETF then consider selling a long-term out-of-the-money call to enhance your overall returns.
Tags: invest 2010, investing 2010, investors, mad money, market tips 2010, stock tips 2010, trading, wall street
The long-term economic outlook remains gloomy, but stocks should advance in 2010. Though 2009 had you on the edge of your seat, with the longest and steepest recession since World War II, gross domestic product eked out a modest growth of 3.5% in the third quarter. The stock market, which bottomed on March 9, 2009, soared 60% in the last seven months. For 2010, the growth will be anemic, with GDP predicted to be between two and three percent.
Investing in blue chip stocks is always a safe bet for any portfolio. Look for blue chip companies with strong foreign sales on their balance sheets, as well as those with a presence in China. Companies fitting this criterion include Apple Inc. (AAPL), Nike Inc. (NKE), Procter & Gamble (PG) and Monsanto Co. (MON).
Commodities such as oil and iron are traded globally and are priced in dollars. Demand from emerging markets, along with a weak dollar, will drive up prices, making this sector attractive in 2010. Natural resource producers will benefit significantly from these market trends. Players in this sector include Halliburton Company (HAL), Baker Hughes Inc. (BHI) and National Oilwell Varco Inc. (NOV).
Many investors are understandably skittish about the health of the U.S. dollar and other major currencies. Gold is a great choice to balance out any portfolio. Companies such as Barrick Gold (ABX) and Newmont Mining (NEM) are power plays. Not to be ignored, silver may outshine gold in 2010, as spot prices for the white metal rise due to a surge in industrial demand. Silver inventories will be replenished by the traditional industrial end users such as the electronics industry and that could take up to six months or more. Additionally, new market places for silver will be created, such as the demand for silver-zinc batteries used in “smart” automobiles. Silver Standard Resources Inc. (SSRI) is one player in the mining of silver.
Lastly, health care is an enormous and growing domestic industry. The focus should be on companies that benefit significantly from cost reduction and expanded insurance coverage, as these will be players in 2010. These companies include Quest Diagnostics (DGX), which provides testing services and drug distributor, McKesson Corporation (MCK). If investing in the individual stocks isn’t what you are looking for, then consider mutual funds that invest in those stocks.
Tags: 2010 investing, 2010 predictions, 2010 stocks, AAPL, ABX, DGX, gold stocks, health care stocks, markets, MCK, MON, NEM, NKE, PG, silver stocks, SSRI, stocks, trading
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